Chapter 3
a savings account set up specifically to be used to cover financial expenses that are unplanned
What is an emergency fund
The recommended percentage of the purchase price you should put for a down payment when you are buying a vehicle
What is 20%
a written plan for giving, saving, and spending
What is a budget
expense that remains the same from month to month
What is a fixed-expense
money received for work, as a gift, or through investment
What is income
a purchase that requires a significant amount of money
What is a large purchase
The drop in your car’s (assets) value over time—
aka how fast your car loses money.
What is depreciation
a cash-flow plan that assigns an expense to every dollar of your income; the goal is for the total income minus the total expenses to equal zero
What is a Zero-based budget
expense that varies in dollar amount from month to month, but that you can expect to have every month
What is a variable expense
the amount you earn before taxes and other payroll deductions
What is gross income
the percentage of principal charged by the lender for use of its money
What is interest rate
The equation for calculating compound interest
What is FV=PV(1+r/m)^m(t)
FV=Future value
PV= Present Value
r=Interest rate expressed as a decimal
m=# of times compounded annually
t=time (number of years)
a record that summarizes all of the income and outgo (spending) over a certain time period
What is a cash flow statement
expense for things you don’t need
What is Discretionary (Nonessential) Expense
what a person earns after payroll taxes and other deductions are taken out; often referred to as take-home pay
What is net income
the persistent rise in the cost of goods and services over time
What is inflation
the amount of interest charged on a debt but not yet collected; interest accumulates from the date a loan is issued
What is accrued interest
earnings based on a percentage of the sales made
What is Commission
expense that occurs at various times throughout the year and tends to be in large, lump sums
What is an Intermittent Expense
income that comes in at different amounts or at different times, or both
What is irregular income
interest paid on interest previously earned
What is compound interest
the average rate of growth for an investment over time; often expressed as an annual figure
What is compound growth
A method of budgeting that uses envelopes labeled with specific budget categories for your cash.
What is the envelope system
a record that summarizes all of the income and outgo (spending) over a certain time period
What is cash flow statement